Political row brews as Scottish subsidy soars to record high

Published on 15/12/2005 01:43

SCOTLAND's annual subsidy from England has shot up to a record £2,200 a head, according to official government figures, having more than doubled since Labour came to power.

Gordon Brown's spending bonanza has pushed Jack McConnell's budget to Scandinavian levels at a time when Scotland's tax burden dropped below that of England, Poland and Canada.

The figures from the Scottish Executive sparked a political storm yesterday as MSPs asked why it has failed to translate world-class spending into world-class public services.

In its annual survey of the Scottish economy, the Executive said the government spent 45.3 billion in 2003-4, putting Scotland in a rare club of countries where state spending is more than half of the entire economy.

But only 34 billion was generated in tax. This leaves an 11.3 billion gap, which has to be filled by tax collected in England, as Wales and Northern Ireland are also heavily subsidised.

The figures do not include North Sea oil and gas; but the study shows that even if Scotland had collected every penny of tax raised offshore, it would still have required a 7 billion subsidy from England.

The Scottish Conservatives last night demanded to know what was going wrong. Derek Brownlee, their finance spokesman, said that while some of Scotland's higher spending needs are due to sparse population, the real culprit is "the Lib-Lab Executive's refusal to look at real reform in public services".

The Scottish National Party has long argued that the annual study, entitled Government Expenditure and Revenue in Scotland (GERS) is a piece of statistical "propaganda". It says that if oil wealth is counted, then Scotland is subsidising England.

But Jim Mather, the SNP's economic spokesman, said he was alarmed at the growing disconnect between economic growth and government spending in Scotland.

"If the figures are correct, the Executive has serious questions to answer about their stewardship of Scotland's economy," he said. "Is there any other country in Europe that has experienced such a devastating slip in revenue against expenditure?"

Mr Mather said that rising oil prices would help Scotland, but only if the country was independent. The tax haul from oil is expected to almost treble, from 4.3 billion in 2003-4 to 11.7 billion in 2006-7.

Labour seized on the GERS report to say it destroyed the case for Scottish independence. "This is a hammer blow to those who talk about independence, or even fiscal autonomy. This shows that there is money that Scotland gets from being part of the UK which it wouldn't get if it was independent," a spokesman said.

The SNP counters that, even if an independent Scotland was in deficit, it would simply borrow money on international markets as the UK does.

For more than a century, Scotland has received a greater share of money than its population would indicate. The Executive has long defended this, saying the greater role of agriculture, fisheries and forestry and greater deprivation demands more spending.

But the subsidy - which was just 1,055 per head in 1997-98 - is becoming increasingly controversial in England, where a growing number of MPs want a new system for dividing government funds across the UK.

State spending in Scotland is next year forecast to soar to 51.6 billion - or 52.2 per cent of the national economy. This is not only higher than the UK's 45.2 per cent, but also any country in the developed world save Sweden, Denmark and France.

But the tax revenue for Scotland in 2003 - the last full year where figures are available - shows Scotland has the seventh lowest tax take among the world's 30 most developed countries.

Under the rules of devolution, the Scottish Executive cannot save money - or even turn down the sums sent from the Treasury each year. Its annual budget increase is decided by a system known as the Barnett Formula.